Capping prices not good: Montek

Planning commission Deputy Chairperson Montek Singh Ahluwalia on Tuesday favoured increasing prices of petroleum goods due to the steep hike in global crude prices that was nearing a staggering $100 per barrel.

"If the oil prices remain high on a sustained basis it will have to be passed on to the consumers. I do not believe capping oil prices is a good way of controlling inflation,” Ahluwalia said on the sidelines of a World Economic Forum (WEF) meeting here.

With the oil prices touching a record high and nearing $ 100 per barrel, the government has been concerned at the serious implications of its decision not to revise the retail prices of key petroleum products in spite of rising crude prices.

The Indian crude oil basket is hovering around $89 a barrel.

Oil marketing companies Indian Oil Corporation, Bharat Petroleum Corporation and Hindustan Petroleum Corporation are currently losing over Rs 240 crore per day on the sale of petrol, diesel, domestic LPG and PDS kerosene. The companies are currently incurring a loss of Rs 4.94 on sale of every litre of petrol, Rs 6.50 per litre on diesel, Rs 16.42 a litre on kerosene and Rs 207 per cylinder on LPG.

The prices of petrol and diesel were reduced by Rs 2 and Re 1 respectively in February this year. The crude prices average at that time were in the vicinity of $55 per barrel.

Estimates show that the revenue loss of the public sector oil marketing companies could touch Rs 70,000 crore in the current financial year if prices remained unchanged. The cabinet had earlier agreed to issue oil bonds to 42.70 per cent of the under recoveries, while the upstream companies would cross-subsidise to the tune of 35 per cent of the revenue loss. Marketing companies are expected to take the remaining burden.

Last month, Prime Minister Manmohan Singh expressed concern about the mounting subsidy bill on account of fertilisers, food and petroleum, which is expected to be over Rs 1 lakh crore.

Speaking at the WEF, Alhuwalia said the government intends to raise investment in the infrastructure sector to 9 per cent of Gross Domestic Product (GDP) by 2012. “The cabinet has recently approved the draft of the Eleventh Plan which envisages an increase in infrastructure investment from 5 per cent of GDP to 9 per cent,” he said.

The country would need an investment of $500 billion in infrastructure during 2007-2012, he said, adding that this should not be a problem as "specific policies are in place for achieving a jump in investment", he said.